Saturday, September 03, 2011

The Real Meaning Of The Solyndra Bankruptcy

Behind the haze of many opinions about the Solyndra bankruptcy, there is an important business story here. Another American manufacturing company has proven itself unable to compete with lower priced foreign products. Some news and stories focus on the failure of the half billion dollar federal loan guarantee to the upstart solar panel maker, or even insinuate somehow there is not a viable market for modern green technology such as solar panels to compete with the more expensive traditional electrical power sources. However, both views are factually incorrect and miss the major news here that countries like China saw another tremendous opportunity for manufacturing growth and quickly joined in the solar panel manufacturing business, substantially dropping prices by at least 40% for the panels making it impossible for upstart U.S. companies like Solyndra to compete.

The story of dropping prices in a new technology market is a familiar one, and one that foreign competition for American business is the most skillful at. We've seen this all before in the TV, VCR, DVD player and computer industries. New technology first hits the market at very high prices, foreign manufacturers scent a new market, and quickly develop much lower priced products in that market, reducing prices overall for consumers.

If Washington made any mistake in offering the loan guarantee to Solyndra, it was in not anticipating that the success of solar panel technology would only encourage new foreign competition and drop prices making solar panels far more affordable for more and more consumers. For some odd reason, neither Washington or Solyndra saw that train coming. Both somehow thought that such new technology was so fresh that it was unique to American developers.

The important lesson in all of this is that no matter how new some American technology innovation is, American manufacturing can always expect stiff foreign competition before long. Unless American manufacturing has an answer to that very important factor, then it's probably due for a rough businss ride.


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